Royal Mail workers win pay increase of 9% over three years

Agreement includes demands on job security, pensions and other conditions and union involvement in running of business.

Royal Mail staff will get a pay increase of more than 9% over three years after the company and its union announced what they said was a groundbreaking legal agreement on industrial relations at the newly privatised company.

The deal was announced as the government’s fiscal watchdog indicated most workers would have to wait another two years before wage rises returned to “normal” levels of 2% a year.

The 9.06% increase in basic pay at Royal Mail is more than the 8.6% the Communication Workers Union rejected in July. The company’s 139,000 workers will also get a one-off £200 payment this month, down from £300 the company offered before.

Royal Mail also agreed to a string of union demands on job security, pensions and other conditions which will apply for five years, at the same time as increasing union involvement in the running of the business in a move towards “German-style” industrial relations.

The five year deal includes:

• No franchising or outsourcing of businesses.

• A ban on zero-hours contracts for Royal Mail employees.

• A full-time workforce with the aim of no compulsory redundancies.

• No downgrades to employees’ agreed working conditions.

• Extra payments by Royal Mail into employees’ pension scheme.

Royal Mail said that in return the union had signed up to measures designed to prevent local strikes and remove the threat of national action by the CWU. The main provisions were an undertaking to bring in national union and company officers immediately to resolve local disputes and moving to independent mediation within a week, as well as using more independent mediation such as Acas at national level. The union will also take part in a monthly “growth forum” with company top brass and make presentations to Royal Mail’s full board.

The deal stops short of a no-strike agreement but Royal Mail can withdraw from the employee protection agreement if the CWU holds national industrial action. Royal Mail said this gave the CWU a big incentive to reach agreement instead of threatening a strike.

Nick Bacon, professor of human resource management at Cass Business School, said: “This looks like a very brave and innovative agreement. Its long-term focus starts to look more like a US mutual gains agreement or a German industry-wide agreement.

“There will be hiccups along the way and tensions – it’s not easy to adopt a more co-operative approach when you are used to industrial relations being based more on conflict. I would imagine that many trade unions would bite employers’ hands off for this kind of arrangement in the current climate.”

It came as the chairman of the Office for Budget Responsibility, Robert Chote, told MPs that falling real-terms wages, coupled with increasing house prices, were holding down living standards.

Giving evidence to the House of Commons Treasury committee, Chote said: “We are still waiting for productivity growth to pick up. The expectation would be that that would lead to earnings growth. In terms of real earnings, we don’t get the sort of 2%-a-year real growth in wages and salaries that people would have been used to on past historical experience for a couple of years still.”

As well as facing the threat of national industrial action, Royal Mail has suffered multiple local disputes that have disrupted services. In 2007 and 2009, two-thirds of all strike days in the UK were at Royal Mail.

The company and the union said the agreement would underpin a big expansion of parcel capacity as it battles for business with competitors. The company sees growth of parcels, fuelled by increasing use of the internet by consumers, as the key to its prospects as letters become less popular.

The CWU’s deputy general secretary, Dave Ward, said: “The agreement breaks new ground in the UK by incorporating extensive, legally binding protections for employees alongside a commitment to improve industrial stability. The legal protections for Royal Mail employees come hard on the heels of the privatisation of the company and are unprecedented in delivering the strongest protections for employees.”

The CWU has fought a long battle to preserve its members’ terms and conditions under Royal Mail’s new ownership by City investors. The risk of a national strike was cited as one factor in the 330p valuation of Royal Mail shares in the company’s flotation in October. The shares have since gained 80%, closing on Monday up 0.4% at 597p – just short of the company’s record 599p closing price since the float.

Royal Mail said the pay and pensions agreements did not change its financial outlook or its business plan.

Moya Greene, Royal Mail’s chief executive, said: “This will provide long-term stability and certainty for Royal Mail, our employees and our customers at this pivotal time. Working together we can create a strong foundation for the continued success of our business.”

Under the pay deal, Royal Mail workers will get a 3% pay rise this financial year, backdated to April, another 3% rise next year and 2.8% in 2014-2015.

Gert Zonneveld, an industry analyst at Panmure Gordon, said: “For investors it depends on how aggressive you are as an investor. If you were hoping the company would really aggressively negotiate with the union you will be slightly disappointed. But most investors realise that to achieve change you need the cooperation of your union.

“Nobody has a crystal ball so you can’t always commit yourself but they have agreed to certain things and to having a clear and open dialogue. There are no bad surprises and most investors will be pleased there’s an agreement.”